FINANCIAL STATEMENTS. Years Ended March 31, 2016 & 2015 with Independent Auditors' Report

Transcription

1 FINANCIAL STATEMENTS Years Ended March 31, 2016 & 2015 with Independent Auditors' Report

2 YEARS ENDED MARCH 31, 2016 AND 2015 TABLE OF CONTENTS Independent Auditors Report 1 Management s Discussion and Analysis 3 Financial Statements: Statements of Net Position 10 Statements of Revenues, Expenses and Changes in Net Position 11 Statements of Cash Flows 12 Notes to the Financial Statements 14

3 INDEPENDENT AUDITORS REPORT Board of Directors Marin Clean Energy San Rafael, California We have audited the accompanying financial statements of Marin Clean Energy ( MCE ), as of and for the years ended March 31, 2016 and 2015, and the related notes to the financial statements, which collectively comprise MCE s basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion Hopyard Road, Suite 335 Pleasanton, CA Tel: Fax: FRESNO LAGUNA HILLS PALO ALTO PLEASANTON RANCHO CUCAMONGA RIVERSIDE SACRAMENTO

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Marin Clean Energy, as of March 31, 2016 and 2015, and the changes in financial position and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Pleasanton, California July 19,

5 MANAGEMENT S DISCUSSION AND ANALYSIS The Management s Discussion and Analysis provides an overview of Marin Clean Energy s (MCE) financial activities for the fiscal years ended March 31, 2016 and The information presented here should be considered in conjunction with the audited financial statements. Contents of this Report This report is divided into the following sections: Management discussion and analysis, which provides an overview of operations. The Basic Financial Statements, which offer information on MCE s financial results. o The Statements of Net Position includes all of MCE s assets, liabilities, and net position using the accrual method of accounting. The Statements of Net Position provide information about the nature and amount of resources and obligations at a specific point in time. o The Statements of Revenues, Expenses, and Changes in Net Position report all of MCE s revenue and expenses for the years shown. o The Statements of Cash Flows report the cash provided and used by operating activities, as well as other sources and payments, such as debt financing. o Notes to the Basic Financial Statements, which provide additional details and information pertaining to the financial statements. Nature of Operations MCE is a California Joint Powers Authority founded in 2008 pursuant to the Joint Exercise of Powers Act and is a public agency separate from its members. MCE provides electric service to retail customers as a Community Choice Aggregation Program under the California Public Utilities Code Section MCE s mission is to address climate change by reducing energy related greenhouse gas emissions through renewable energy supply and energy efficiency at stable and competitive rates for customers while providing local economic and workforce benefits. MCE provides electric service to retail customers and has the rights and powers to set rates and charges for electricity and services it furnishes, incur indebtedness, and issue bonds or other obligations. MCE acquires electricity from commercial suppliers and delivers it through existing physical infrastructure and equipment managed by the California Independent System Operator and Pacific Gas and Electric Company. MCE s Energy Efficiency Program supports the development, coordination and implementation of residential, commercial and multi-family energy efficiency programs in and around MCE s service area. 3

6 MANAGEMENT S DISCUSSION AND ANALYSIS (Continued) The parties to MCE s Joint Powers Agreement consist of local governments whose governing bodies elect to join MCE. Pursuant to the Public Utilities Code, when new parties join MCE, all electricity customers in its jurisdiction automatically become default customers of MCE for electric generation, provided that customers are given the option to opt out. MCE receives no financial support from the parties to its Joint Powers Agreement and relies exclusively on operating revenues to meet its financial commitments. MCE began to deliver electricity and energy efficiency programs in May 2010 and April 2013 respectively. From time to time new communities apply and are accepted to join MCE. MCE began serving customers in unincorporated Napa County in February 2015 and customers in Benecia, El Cerrito and San Pablo during May MCE accepted the membership applications of the cities of American Canyon, Calistoga, Lafayette, Napa, Walnut Creek and the Town of Yountville in April, 2016 and is initiating service to these communities in September MCE s historical and projected retail accounts by customer group are as follows: Enrolled Retail Service Accounts Phase-In Period (End of Month) Projected July 2013 Feb 2015 May 2015 Sep 2016 MCE Customer Groups Residential 106, , , ,128 Small Commercial 11,829 13,761 17,119 24,107 Medium Commercial 903 1,120 1,429 2,278 Large Commercial Industrial Street Lighting & Traffic 748 1,014 1,219 1,866 Agriculture & Pump 109 1,467 1,625 1,700 Total 120, , , ,968 Customer Account Additions 32,651 17,536 33,600 84,367 % Increase in Customers Accounts 37% 15% 24% 49% 4

7 Financial and Operational Highlights MARIN CLEAN ENERGY MANAGEMENT S DISCUSSION AND ANALYSIS (Continued) MCE s net position increased by $16.3 million to $29.5 million as of March 31, 2016 up from a $3.7 million increase in net position in the prior period. During fiscal , MCE increased its cash and cash equivalents to $21.7 million. Working capital and the current ratio (current assets divided by current liabilities) increased to $26.5 million and 2.81:1 respectively. 78% of MCE s total liabilities consist of accrued electricity costs which represent electricity delivered to MCE but not yet billed by the supplier. During fiscal MCE repaid notes payable to the bank ahead of schedule. MCE had no bank debt outstanding as of March 31, The following table is a summary of MCE s assets, liabilities, and net position as of March 31: Current assets Cash and cash equivalents $ 21,696,949 $ 10,173,815 $ 8,248,488 Other current assets 19,424,154 16,027,326 12,906,255 Total current assets 41,121,103 26,201,141 21,154,743 Noncurrent assets Capital assets 542, ,626 58,807 Other noncurrent assets 2,479,516 1,378,587 1,278,698 Total noncurrent assets 3,021,715 1,786,213 1,337,505 Total assets 44,142,818 27,987,354 22,492,248 Current liabilities Accrued cost of electricity 11,500,898 8,808,354 6,409,847 Other current liabilities 3,110,850 3,898,645 3,430,932 Notes payable to bank - 1,035,409 1,069,125 Total current liabilities 14,611,748 13,742,408 10,909,904 Noncurrent liabilities Notes payable to bank - 988,627 2,024,308 Total liabilities 14,611,748 14,731,035 12,934,212 Net position: Net investment in capital assets 542, ,626 58,807 Restricted 1,659, , ,200 Unrestricted 27,329,707 12,250,493 8,901,029 Total net position $ 29,531,070 $ 13,256,319 $ 9,558,036 Working Capital: $ 26,509,355 $ 12,458,733 $ 10,244,839 Current Ratio: Total Liabilities / Net Position:

8 MANAGEMENT S DISCUSSION AND ANALYSIS (Continued) Consistent with its Reserve Policy, MCE is building its net position to support the working capital requirements of the agency, to provide a reserve to manage the risk of adverse economic or regulatory events, and to improve its credit worthiness. A strong net position allows MCE to provide consistent and reliable service to the community and to contract for energy and other services at lower costs and on more favorable terms. MCE s results of operations are summarized as follows for the fiscal year ended March 31: Operating revenues $ 151,664,778 $ 100,654,696 $ 85,561,759 Interest income 12,179 3,716 8,965 Total income 151,676, ,658,412 85,570,724 Operating expenses 135,257,348 96,835,644 83,749,875 Interest and related expenses 144, , ,687 Total expenses 135,402,206 96,960,129 83,925,562 Increase in net position $ 16,274,751 $ 3,698,283 $ 1,645,162 Electricity Sales and Costs Electricity revenues increased by $50.6 million to $149.5 million in fiscal as a result of the inclusion of new communities and the growth of customer accounts which grew from approximately 138,000 in February 2015 to 171,000 during the year. Cost of electricity increased by $36.1 million to $124.1 million as MCE acquired electricity to serve the new customers. Gross surplus, defined as electricity sales less cost of electricity, increased to $25.4 million from $10.8 million in the prior year as a result of increased sales and increased margins. Gross margin, defined as gross surplus as a percent of electricity sales, increased from 11% in 2015 to 17% in 2016 in part as a result of lower per unit energy costs. MCE s gross surplus and gross margin are summarized as follows for the fiscal year ended March 31: Electricity sales, net $ 149,486,696 $ 98,840,861 $ 84,605,751 Cost of electricity 124,095,978 87,996,399 76,088,268 Gross surplus $ 25,390,718 $ 10,844,462 $ 8,517,483 Gross margin: 17.0% 11.0% 10.1% 6

9 MANAGEMENT S DISCUSSION AND ANALYSIS (Continued) Operating Revenues and Operating Expenses less Cost of Electricity Total operating revenue less the cost of electricity increased by 117.8% to $27.6 million in fiscal This was driven by increased gross surplus and increased grant funding from the California Utilities Commission to support the growth of the Energy Efficiency Program. Other revenues, consisting predominately of payments required from energy suppliers as a result of delays in energy deliveries, were flat for the year. Year-over-year operating expenses, excluding cost of electricity, increased by 26.3% to $11.2 million reflecting increased staffing, contractor, legal and general overhead costs. Operating expenses, excluding cost of electricity, as a percent of operating revenue less cost of electricity fell from 70% in to 40% in fiscal MCE s gross surplus, operating income, and various ratios are summarized as follows: Gross surplus $ 25,390,718 $ 10,844,462 $ 8,517,483 Grant revenue - Energy Efficiency Program 1,545,030 1,125, ,947 Other revenue 633, ,491 38,061 Total operating revenues less cost of electricity 27,568,800 12,658,297 9,473,491 Operating expenses, excluding cost of electricity 11,161,370 8,839,245 7,661,607 Operating income $ 16,407,430 $ 3,819,052 $ 1,811,884 Operating expenses, excluding cost of electricity, over total operating revenues less cost of electricity: 40.5% 69.8% 80.9% % increase in Gross surplus: 117.8% 33.6% 1.0% % increase in operating expenses less cost of electricity: 26.3% 15.4% 47.0% % increase in operating income: 329.6% 110.8% -95.0% 7

10 (In Millions) MARIN CLEAN ENERGY MANAGEMENT S DISCUSSION AND ANALYSIS (Continued) FINANCIAL SUMMARY FINANCIAL POSITION: FISCAL YEAR ENDED MARCH 31: $160 $150 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $ Total Revenues Total Expenses Increase (decrease) in net position ASSETS, LIABILITIES, AND NET POSITION AS OF MARCH 31, 2016: Accounts receivable, net, 28% ASSETS Accrued revenue, 12% Accrued cost of electricity, 26% LIABILITIES & NET POSITION Grant advances, 3% Other liabilities, 4% Cash and cash equivalents, 49% Other assets, 11% Net position, 67% Cash and cash equivalents $ 21,696,949 Accounts receivable, net 12,217,586 Accrued revenue 5,356,608 Other assets 4,871,675 Total Assets $ 44,142,818 Accrued cost of electricity $ 11,500,898 Grant advances 1,220,909 Other liabilities 1,889,941 Net position 29,531,070 Total liabilities & net position $ 44,142,818 8

11 MANAGEMENT S DISCUSSION AND ANALYSIS (Continued) PURCHASE COMMITMENTS AND ECONOMIC OUTLOOK In the normal course of business, MCE enters into various agreements, including renewable energy agreements and other power purchase agreements to purchase power and electric capacity. These agreements involve short, medium and long term commitments. Entering into long term purchase commitments is an effective means of bringing new solar, wind and other renewable energy generating facilities on-line and of helping the agency to accomplish its mission of providing renewable energy and reducing greenhouse gas emissions. MCE manages risks associated with these commitments by aligning purchase commitments with expected demand for electricity and assuring diversity of technologies, geographical locations, and suppliers. Total expected obligations under power purchase agreements totaled approximately $824.2 million as of March 31, In September 2016 MCE will begin to provide service to customers located in the cities of American Canyon, Calistoga, Lafayette, Napa, Walnut Creek and the Town of Yountville resulting in an expected increase in the number of MCE customer accounts of 84,000 or 49% of its current customer base. In June 2016, MCE s Board of Directors approved a reduction in electricity rates effective September 1, 2016 consistent with MCE s Reserve Policy and Rate Setting Guidelines. Management intends to continue its conservative use of financial resources and expects ongoing operating surpluses. REQUESTS FOR INFORMATION This financial report is designed to provide MCE s board members, stakeholders, customers and creditors with a general overview of the MCE s finances and to demonstrate MCE s accountability for the funds under its stewardship. Please address any questions about this report or requests for additional financial information to Finance and Project Manager, 1125 Tamalpais Avenue, San Rafael, CA

12 BASIC FINANCIAL STATEMENTS

13 STATEMENTS OF NET POSITION MARCH 31, 2016 AND ASSETS Current assets Cash and cash equivalents $ 21,696,949 $ 10,173,815 Accounts receivable, net of allowance 12,217,586 10,528,880 Other receivables 525, ,185 Accrued revenue 5,356,608 4,502,232 Prepaid expenses 1,261, ,152 Other current assets and deposits 62,929 44,877 Total current assets 41,121,103 26,201,141 Noncurrent assets Capital assets, net of depreciation 542, ,626 Restricted cash 2,206,664 1,145,700 Other noncurrent assets and deposits 272, ,887 Total noncurrent assets 3,021,715 1,786,213 Total assets 44,142,818 27,987,354 Current liabilities Accounts payable 657, ,967 Accrued cost of electricity 11,500,898 8,808,354 Other accrued liabilities 305, ,357 User taxes and energy surcharges due to other governments 927, ,230 Advances from grantors 1,220,909 2,209,091 Notes payable to bank - 1,035,409 Total current liabilities 14,611,748 13,742,408 Noncurrent liabilities Notes payable to bank - 988,627 Net position LIABILITIES Total liabilities 14,611,748 14,731,035 NET POSITION Net investment in capital assets 542, ,626 Restricted for line of credit collateral 1,659, ,200 Unrestricted 27,329,707 12,250,493 Total net position $ 29,531,070 $ 13,256,319 The accompanying notes are an integral part of these financial statements 10

14 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FISCAL YEARS ENDED MARCH 31, 2016 AND Operating revenues Electricity sales, net $ 149,486,696 $ 98,840,861 Grant revenue for Energy Efficiency Program 1,545,030 1,125,344 Other revenue 633, ,491 Total operating revenues 151,664, ,654,696 Operating expenses Cost of electricity 124,095,978 87,996,399 Contract services 6,584,384 5,769,008 Staff compensation 3,405,416 2,216,199 General and administration 1,094, ,510 Depreciation 76,607 28,528 Total operating expenses 135,257,348 96,835,644 Operating income 16,407,430 3,819,052 Non-operating revenues (expenses) Interest income 12,179 3,716 Interest and related expenses (144,858) (124,485) Net non-operating revenues (expenses) (132,679) (120,769) Changes in net position 16,274,751 3,698,283 Net position at beginning of period 13,256,319 9,558,036 Net position at end of period $ 29,531,070 $ 13,256,319 The accompanying notes are an integral part of these financial statements 11

15 STATEMENTS OF CASH FLOWS FISCAL YEARS ENDED MARCH 31, 2016 AND CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 147,265,935 $ 96,695,557 Grant receipts from Energy Efficiency Program 291,375 1,505,702 Cash received from other revenue sources 926, ,297 Cash payments to purchase electricity (122,324,217) (86,220,713) Cash payments for contract services (6,560,471) (5,763,707) Cash payments for staff compensation (3,312,945) (2,179,654) Cash payments for general and administration (1,080,328) (751,575) Other cash receipts (41,598) (144,766) Net cash provided by operating activities 15,164,358 3,283,141 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Return of financing reserve 598,200 - Payments of financing reserve (1,659,164) - Principal payments of notes payable to bank (2,024,036) (1,069,397) Interest and related expenses (144,858) (124,485) Net cash provided (used) by non-capital financing activities (3,229,858) (1,193,882) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets (421,261) (167,648) CASH FLOWS FROM INVESTING ACTIVITIES Investment income 9,895 3,716 Net change in cash and cash equivalents 11,523,134 1,925,327 Cash and cash equivalents at beginning of year 10,173,815 8,248,488 Cash and cash equivalents at end of year $ 21,696,949 $ 10,173,815 The accompanying notes are an integral part of these financial statements 12

16 STATEMENTS OF CASH FLOWS (CONTINUED) FISCAL YEARS ENDED MARCH 31, 2016 AND 2015 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 16,407,430 $ 3,819,052 Adjustments to reconcile operating income to net cash provided (used) by operating activities Depreciation expense 76,607 28,528 (Increase) decrease in net accounts receivable (1,688,706) (1,432,309) (Increase) decrease in other receivables 59,811 (527,269) (Increase) decrease in accrued revenue (854,376) (779,949) (Increase) decrease in prepaid expenses (893,221) (336,667) (Increase) decrease in other assets and deposits (54,327) (144,766) Increase (decrease) in accounts payable (15,240) 54,137 Increase (decrease) in accrued cost of electricity 2,692,544 2,055,009 Increase (decrease) in other accrued liabilities 105,697 27,237 Increase (decrease) in user taxes due to other governments 316,321 44,268 Increase (decrease) in advances from grantor (988,182) 475,870 Net cash provided by operating activities $ 15,164,358 $ 3,283,141 The accompanying notes are an integral part of these financial statements 13

17 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2016 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING ENTITY Marin Clean Energy (MCE) is a California joint powers authority created on December 19, As of March 31, 2016 parties to its Joint Powers Agreement consist of the following local governments: the Counties of Marin and Napa, the cities of Belvedere, Benicia, El Cerrito, Larkspur, Mill Valley, Novato, Richmond, San Pablo, San Rafael, and Sausalito and the towns of Corte Madera, Fairfax, Ross, San Anselmo, and Tiburon (collectively, the Parties ). MCE is governed by a Board of Directors whose membership is composed of elected officials representing each of the Parties. MCE s mission is to address climate change by reducing energy related greenhouse gas emissions through renewable energy supply and energy efficiency at stable and competitive rates for customers while providing local economic and workforce benefits. MCE provides electric service to retail customers as a Community Choice Aggregation Program under the California Public Utilities Code Section MCE began the delivery of electricity and energy efficiency programs in May 2010 and April, 2013 respectively. Electricity is acquired from commercial suppliers and delivered through existing physical infrastructure and equipment managed by the California Independent System Operator and Pacific Gas and Electric Company. The Energy Efficiency Program supports the development, coordination and implementation of energy efficiency programs in and around MCE s service area. The Energy Efficiency Program is supported by grants from the California Public Utilities Commission. ACCOUNTING POLICIES MCE s financial statements are prepared in accordance with generally accepted accounting principles (GAAP). The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments through its pronouncements (Statements and Interpretations). 14

18 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2016 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) BASIS OF ACCOUNTING MCE s operations are accounted for as a governmental enterprise fund, and are reported using the economic resources measurement focus and the accrual basis of accounting similar to business enterprises. Accordingly, revenues are recognized when they are earned and expenses are recognized at the time liabilities are incurred. When both restricted and unrestricted resources are available for use, it is the MCE s policy to use restricted resources first, then unrestricted resources as they are needed. CASH AND CASH EQUIVALENTS For purpose of the Statements of Cash Flows, MCE has defined cash and cash equivalents to include cash on hand, demand deposits, and short-term investments. Amounts restricted for debt service and collateral for energy efficiency loan program are not considered cash and cash equivalents. These restricted balances are presented separately in the Statement of Net Position. CAPITAL ASSETS AND DEPRECIATION MCE s policy is to capitalize furniture and equipment valued over $500 that is expected to be in service for over one year. Depreciation is computed according to the straight-line method over estimated useful lives of three years for electronic equipment and seven years for furniture. Leasehold improvements are depreciated over 10 years. OPERATING AND NON-OPERATING REVENUE Operating revenues consists of revenue from the sale of electricity to customers and grant revenue related to the Energy Efficiency Program. Other revenues primarily consist of payments from energy suppliers that result from delays in energy deliveries. Interest income is considered non-operating revenue. REVENUE RECOGNITION MCE recognizes revenue on the accrual basis. This includes invoices issued to customers during the period and electricity estimated to have been delivered but not yet billed. Management estimates that a portion of the billed amounts will not be collected. Accordingly, an allowance has been recorded. 15

19 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2016 AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) ELECTRICAL POWER PURCHASED During the normal course of business MCE purchases electrical power from numerous suppliers. The cost of electricity and ancillary services are recognized as Cost of Electricity in the Statements of Revenues, Expenses and Changes in Net Position. To comply with the State of California s Renewable Portfolio Standards (RPS) and selfimposed benchmarks, MCE acquires RPS eligible renewable energy evidenced by Renewable Energy Certificates (Certificates) recognized by the Western Renewable Energy Generation Information System (WREGIS). MCE obtains Certificates with the intent to retire them, and does not sell or build surpluses of Certificates. An expense is recognized at the point that the cost of the RPS eligible energy is due and payable to the supplier. MCE is in compliance with external mandates and self-imposed benchmarks. STAFFING COSTS MCE pays employees semi-monthly and fully pays its obligation for health benefits and contributions to its defined contribution retirement plan each month. MCE is not obligated to provide post-employment healthcare or other fringe benefits and, accordingly, no related liability is recorded in these financial statements. INCOME TAXES MCE is a joint powers authority under the provision of the California Government Code, and is not subject to federal or state income or franchise taxes. ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation of the current-year financial statements. 16

20 2. CASH AND CASH EQUIVALENTS MARIN CLEAN ENERGY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2016 AND 2015 MCE maintains its cash in both interest and non-interest-bearing demand and term deposit accounts at River City Bank of Sacramento, California. MCE s deposits with River City Bank are subject to California Government Code Section which requires that River City Bank collateralize public funds in excess of the FDIC limit of $250,000 by 110%. MCE monitors its risk exposure to River City Bank on an ongoing basis. MCE s Investment Policy permits the investment of funds in depository accounts, certificates of deposit and the Local Agency Investment Fund. 3. ACCOUNTS RECEIVABLE Changes in accounts receivable were as follows: Accounts receivable from customers $ 15,317,586 $ 12,888,880 $ 10,126,845 Allowance for uncollectible accounts (3,100,000) (2,360,000) (1,030,274) Net accounts receivable $ 12,217,586 $ 10,528,880 $ 9,096,571 The majority of account collections occur within the first few months following customer invoicing. MCE estimates that a portion of the billed accounts will not be collected. MCE continues collection efforts on accounts in excess of de minimis balances regardless of the age of the account. Although collection success generally decreases with the age of the receivable, MCE continues to have success collecting older accounts. The allowance for uncollectible accounts at the end of a period includes amounts billed during the current and prior fiscal years. 4. CAPITAL ASSETS Changes in depreciable capital assets were as follows: Furniture & Leasehold Accumulated Equipment Improvements Depreciation Net Balances at March 31, 2014 $ 100,416 $ 5,881 $ (47,490) $ 58,807 Additions 51, ,511 (28,528) 348,819 Balances at March 31, , ,392 (76,018) 407,626 Additions 85, ,589 (76,607) 134,573 Balances at March 31, 2016 $ 237,843 $ 456,981 $ (152,625) $ 542,199 17

21 5. ADVANCES FROM GRANTOR MARIN CLEAN ENERGY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2016 AND 2015 MCE receives grant funding through the Public Utilities Commission of the State of California (CPUC) for its Energy Efficiency Program. Funds received are not recognized as revenue until they are expended for designated purposes. Total grant funding received for this Program during the fiscal year 2016 was $172,000, and $1,203,000 was spent and earned. In 2015, grant funding received was $1,506,000 and $1,030,000 was spent and earned. The Energy Efficiency Program receives additional grant funding under the Gas Public Purpose Program that is not received in advance. Revenue of $332,000 and $96,000 was recognized under this grant in fiscal years 2016 and 2015, respectively. 6. DEBT NOTES PAYABLE TO RIVER CITY BANK During the fiscal year ending March 31, 2016, MCE paid off both of its bank notes ahead of schedule. Changes in notes payable were as follows: Beginning Payments Ending Year ended March 31, 2015 Note A $ 916,764 $ (489,283) $ 427,481 Note B 2,176,669 (580,114) 1,596,555 Totals $ 3,093,433 $ (1,069,397) 2,024,036 Amounts due within one year (1,035,409) Amounts due after one year $ 988,627 Year ended March 31, 2016 Note A $ 427,481 $ (427,481) $ - Note B 1,596,555 (1,596,555) - Totals $ 2,024,036 $ (2,024,036) - Amounts due within one year - Amounts due after one year $ - LINE OF CREDIT AND LETTERS OF CREDIT MCE enters into certain power purchase agreements which require MCE to post collateral in the form of cash or letter of credit. In order to comply with these requirements, MCE entered into a non-revolving, $15,000,000 credit agreement with River City Bank (RCB) during fiscal that may be used for short term borrowing and to issue standby Letters of Credit used for performance security. RCB requires collateral for the line of credit of $1,659,164 which is reported as restricted cash and restricted net position. 18

22 6. DEBT (continued) MARIN CLEAN ENERGY NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2016 AND 2015 During fiscal , MCE posted standby Letters of Credit totaling $7,300,000. As of March 31, 2016, MCE has not drawn any cash on the line of credit. Fees related to opening the line of credit and posting the letters of credit are reported as interest and related expenses. Subsequent to March 31, 2016, MCE amended the credit agreement with River City Bank to increase the line of credit limit to $20,000,000 and allow for revolving use. 7. DEFINED CONTRIBUTION RETIREMENT PLAN The Marin Clean Energy Plan (Plan) is a defined contribution retirement plan established by MCE to provide benefits at retirement to its employees. The Plan is administered by Nationwide Retirement Solutions. As of March 31, 2016, there were 31 plan members. MCE is required to contribute 10% of annual covered payroll to the Plan and contributed $257,000 and $177,000 during the years ended March 31, 2016 and 2015, respectively. The Plan includes vesting provisions intended to encourage employee retention. Plan provisions and contribution requirements are established and may be amended by the Board of Directors. 8. RISK MANAGEMENT MCE is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; and errors and omissions. During the year, MCE purchased insurance policies from investment grade commercial carriers to mitigate risks that include those associated with earthquakes, theft, general liability, errors and omissions, and property damage. 9. PURCHASE COMMITMENTS POWER AND ELECTRIC CAPACITY In the ordinary course of business, MCE enters into various power purchase agreements in order to acquire renewable and other energy and electric capacity. The price and volume of purchased power may be fixed or variable. Variable pricing is generally based on the market price of either natural gas or electricity at the date of delivery. Variable volume is generally associated with contracts to purchase energy from as-available resources such as solar, wind and small hydro-electric facilities. 19

23 NOTES TO THE FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2016 AND PURCHASE COMMITMENTS (continued) The following table represents the expected, undiscounted, contractual obligations outstanding as of March 31, 2016: Year ended March 31, 2017 $ 113,490, ,981, ,023, ,774, ,523, $ 433,386, ,179,649 SERVICE CONTRACTS As of March 31, 2016, MCE had contractual commitments to professional service providers through April 30, 2019 for services yet to be performed. Fees associated with these contracts are based on volumetric activity and are expected to be $12.4 million. 10. OPERATING LEASE Marin Clean Energy rents office space. Rental expense was $179,000 and $190,000 for the years ended March 31, 2016 and 2015, respectively. On March 9, 2015, MCE entered into a ten year non-cancelable lease for its office premise. The rental agreement includes an option to renew the lease for five additional years. Future minimum lease payments under the lease are as follows: Year ended March 31, 2017 $ 321, , , , , $ 2,032,992 4,104,396 20